How is annual depreciation calculated?

Annual depreciation is calculated using the formula that takes into account the initial cost of an asset, its salvage value, and its useful life. The correct method to determine annual depreciation is by subtracting the salvage value from the initial cost and then dividing that result by the asset's useful life. This approach gives an accurate representation of how much of the asset's value is expensed each year as it is used up.

The salvage value represents the expected value of the asset at the end of its useful life, while the initial cost is how much was initially paid for the asset. By focusing the calculation on the difference between these two values, you are effectively determining the total value that will be depreciated over time.

This understanding is crucial for financial management in laboratory settings, where tracking the depreciation of equipment affects budgeting, financial reporting, and overall asset management strategies.